Anyone involved in the SMSF sector must think all of the planets have completely lost their alignment since budget night on 3 May 2016.
Much has been said about the proposed changes to superannuation handed down on budget night, but there can be no doubt which sector will experience the greatest impact.
According to the government, the transfer cap limit of $1.6 million in pension phase will only impact on 4 per cent of the population and while this claim has been in dispute, there can be no doubt the measure is aimed at superannuants with large asset balances.
Considering the September 2015 edition of the ATO’s annual “Self-Managed Superannuation Funds: A Statistical Overview 2013-14” confirmed the average asset balance for an SMSF grew to over $1 million in 2014, it’s not hard to see which sector of the superannuation market will be affected most.
And if this whack to the sector is not bad enough, the consumer press has again dragged out some old chestnuts as the basis of an argument to let everyone know SMSFs are so bad in so many ways that surely more regulation is needed to bring them into line. You can just about have your eyes covered and still name what the arguments are – a warning about SMSFs with small asset balances and their unviable nature, how the use of gearing is so dangerous and needs to be reined in, and of course the ridiculous nature of the type of assets SMSFs can invest in. To its credit, the SMSF Association came out on the front foot to once again refute the claims, but it must be as sick of having to do this as I am of writing about the subject.
To this end, I’d like to highlight a few issues with these claims.
Articles in the consumer press warned about how almost 50 per cent of SMSFs either lost or made no money over the past seven years and how the smaller the SMSF, the worse it performed against its Australian Prudential Regulation Authority-regulated counterparts.
My question though is whether anyone who cares to make these claims has heard about performance smoothing perpetrated by the larger superannuation funds. Yes, that’s right, it involves the use of reserves to smooth performance numbers so it appears there is consistent strong performance throughout a period of years. This is never mentioned when SMSFs are unflatteringly compared to other funds. So are we really comparing apples with apples here?
Another point raised was about the dubious nature of some of the assets in which SMSFs can invest, using the fact one fund invested in a pride of lions that was leased back to a circus as an example. But no mention was made of the returns that fund generated. If they were good, then what’s the issue? And it can happen. Anecdotally I’ve been told of a fund that invested only in lace material and did very well out of it. So perhaps an SMSF book should not be judged by its cover.
It just makes me wonder where this information is coming from. From journalists to politicians to industry experts, we are hearing about things that are questionable in their logic as catalysts for change.
As I have mentioned before, Treasurer Scott Morrison seems to be convinced a good number of people are using their superannuation funds (read SMSFs) for the primary purpose of intergenerational wealth transfer. To date no practitioner has been able to say this is the case.
Further, the Financial System Inquiry was concerned SMSF assets would have to be sold off to service limited recourse borrowing arrangements. Again, no sector participants have seen this occurring.
So where is all of this information coming from? If it is other self-interested superannuation sectors, as many would suspect, it is evident perhaps their voices are louder than the rest.
It might then mean the consultation and lobbying process from the SMSF sector needs to be ramped up.